Anti-Terrorist FinancingFinTech

FinTech & Terrorist Financing

By November 10, 2017 No Comments

Tackling terrorist financing is a global problem which all players in financial services, both old and new, have a responsibility to contribute to. The recent UK National Money Laundering and Terrorist Financing Risk Assessment identified three areas of FinTech which are vulnerable to terrorist financing: e-money, digital currencies and crowdfunding. Last week we attended the Tech Against Terrorism London FinTech workshop, hosted at Balderton Capital, to learn more about the FinTech terror financing risks and the resources available to help counter these threats.

Tech Against Terrorism is a UN-mandated project which aims to build the capacity of tech companies to prevent their platforms from exploitation by terrorists and violent extremists, while also respecting human rights. It currently works on providing smaller tech companies and start-ups with operational support to build online tools to underpin long-term capacity growth such as terms of service agreements, content takedown and transparency reporting.


Identifying terrorist financing is no easy feat for FinTechs

Identifying terror financing can be difficult for FinTechs. Committing acts of terrorism is not expensive especially when conducted by lone actors or small cells. This is typical of the current threat in the West, where an attack can cost only a few hundred dollars. Terror financing also occurs at a lower frequency than money laundering so there is less available data on what it looks like. For FinTechs who have products with untested risks and who have limited experience and resources for combating these risks, Counter-Terror Financing (CTF) can be a steep learning curve.

FinTechs are most vulnerable at the customer onboarding stage. Many FinTechs will offer near instantaneous non-face-to-face customer onboarding which reduces the length of time available for detailed CTF checks. Additionally, and not a problem exclusive to FinTech, financial service providers can onboard a legitimate client who has no radical tendencies, who is later radicalized but is never re-screened for risk. This subsequent radicalization is difficult to detect without periodic re-screening of client portfolios, which is something that all financial service providers should undertake.

Threats from terrorism also change over time. As the ISIS caliphate is dismantled it is unlikely many more people will go out to fight with the group, we will however, see these foreign fighters returning. These individuals could pose a threat, but how can firms identify these entities if their names are not consolidated in a formal list? FinTechs can counter this intelligence gap by screening for adverse media or negative news to make sure they aren’t dealing with anyone who went to fight for ISIS, as this information could have been covered regularly in local newspapers. Having a thorough CTF compliance program which leverages more insight than sanctions screening alone, will allow FinTechs to stay ahead of evolving threats.

Don’t forget about the far-right threat
It is easy to underestimate the threat posed by far-right terrorist groups, they tend to grab far fewer headlines than religiously motivated groups. However, last year the UK government designated its first far-right terrorist group, National Action and in the US, far-right groups are responsible for 300 violent attacks each year. Far-right groups need money in the same way as religiously motivated terrorist groups but often their risk signals will differ. It is essential that FinTech take the far-right threat into consideration and have processes in place to stop these groups accessing the formal financial system.

Communication is key
Once they have established their own compliance processes, FinTechs can benefit from talking to each other. Initiatives that encourage dialogue within and between financial services firms have shown to be incredibly important at countering the financing of terrorism. In the UK, the work of the Joint Money Laundering Intelligence Taskforce (JMLIT) has been highly praised and mimicked across the world. It is a safe space for 40 large financial institutions and law enforcement agencies to exchange information on AML/CTF threats. Also in the UK, the work of the FinTech Financial Crime Exchange (FFE) was praised for bringing together over 30 FinTechs in a similar way as JMLIT to share experiences of how best to implement AML/CTF policies for products where risks might be unknown.

So, what should FinTechs do?
If you’re a FinTech and worried about how terrorists could exploit your business, make sure you conduct a proper risk assessment by assessing the exposure of your products, clients and third parties. Get in contact with organizations such as Tech Against Terrorism and the Global Internet Forum to Counter Terrorism who can provide you with support to counter this threat. Talk to your industry peers to find out what they are doing to identify threats. And finally, if you see something suspicious, report it.

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